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Rasika Athawale and Frank A. Felder CHP Cost-Benefit Analysis AGENDA 1.Key Inputs into the CHP Cost-Benefit Analysis Model 2.Major Assumptions and Quantifying Uncertainties 3.Response to stakeholder comments received 4.Next Steps 2 DRAFT We would like to thank the Rate Counsel, Gearoid Foley, Anne-Marie Peracchio (NJNG), TRC for their time and valuable inputs. References used and other reports by CEEEP can be found at http://policy.rutgers.edu/ceeep/chp http://policy.rutgers.edu/ceeep/chp

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Rasika Athawale and Frank A. Felder CHP Cost-Benefit Analysis Data segmentation does not lead to any specific correlation results (3/6) 9 DRAFT 2 S. N. Data SegmentationNo. of Plants Avg. of avg. CF CF Std. Dev. Avg. CV*Comments AAll plants125147%9%19%Complete Data Set BA. Post excluding data for 1 st year115247%9%19%To account for the fact that a plant need not have necessarily started operations on 1 st of January COut of B only those with complete 12 years data33055%10%18%To account for absence of information for certain plants DOut of C only those with capacity < 30 MW10652%9%17%To exclude probable PURPA plants which might have been installed for different reasons EOut of D only those having one single Prime Mover type across all units 8756%9%16%To exclude for any differences due to the prime mover type FOut of E only those using NG as fuel5659%10%16%To bring further homogeneity to the group GOut of F only those with CT or GT as Prime Mover4262%10%16%To bring further homogeneity to the group * Coefficient of Variation = Std. Deviation / Mean

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Rasika Athawale and Frank A. Felder CHP Cost-Benefit Analysis Major Hurricanes/ Tropical Storms have occurred at a rate of 0.21 per year in NJ over the last 28 year period (3/6) 18 DRAFT 4 36 hurricanes and tropical storms have affected New Jersey in various capacities – as remnants of the storm to high levels of precipitation and winds – (since 1985 to 2013), an average of 1.3 hurricanes or tropical storms per year over that span of time. While some of these 36 hurricanes/tropical storms reported minor electricity distribution impact - including little to no major power loss to customers - our database compilation included 9 total with reported power outages at 1000 or more, and classified 6 as “major” with over 100,000 outages (many of the 6 exceeding this number) – which means an average of 0.21 major hurricanes per year. 1985 1999 2003 200620112012 Frequency and intensity of future severe weather events may be different than historical

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Rasika Athawale and Frank A. Felder CHP Cost-Benefit Analysis VOLL depends upon various factors notably the type of facility (4/6) 19 DRAFT 4 Factors affecting VOLL Duration longer outages are more disruptive overall, but also have a lower per unit cost Amount of Notification loss can be lowered by advance notice Time of Week & Time of Day weekday outages are most costly for firms; for residential weekend outages are more costly; Afternoon interruptions are more costly for firms; morning outages are more costly for residents Location densely populated areas and areas with a high concentration of industry are most affected Customer Type residential, commercial or industrial Season some industries may face greater loss from outages during certain seasons

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Rasika Athawale and Frank A. Felder CHP Cost-Benefit Analysis Response to stakeholder comments received 26 DRAFT S.No.Comment ReceivedCEEEP Response 1. RC: Key Assumptions – Financial Assumptions “CEEEP should consult with various stakeholders such as CHP project developers, lenders, and investors to learn NJ-specific financial data, including the debt/equity ratio, equity rates, loan rates, loan repayment, depreciation schedule, and construction period. “ Information obtained from past & current applications filed under the Large Scale CHP-Fuel Cells Program provides actual assumptions of developers in NJ and therefore is a good starting point for financial assumptions. 2. RC: Key Assumptions – Standby Rates “CEEEP is planning to meet with utility staff to receive input on utility standby rates. Rate Counsel supports this approach as a way to develop standby rate assumptions for CEEEP’s CBA model, but also suggests that CEEEP consult with Rate Counsel before finalizing standby rate assumptions.” Current study SOW involves making use of current utility standby rates for calculation purpose. Arriving at a methodology for standby charges is not within this study’s scope of work. 3.RC: Key Assumptions – Monthly Gas and Electric Peak and Usage “For monthly gas and electric usage data for large nonutility power producers, including CHP, Rate Counsel suggests CEEEP investigate U.S. EIA’s 923 data, as this database is publicly available and contains data on CHP facilities in New Jersey. …. Rate Counsel does not have any data source for monthly peak usage data, but notes that monthly peak data as well as time of use and seasonal usage data (e.g., winter off-peak and peak, summer peak and off-peak) would be useful to estimate more accurate avoided costs and emissions for certain applications calling for a higher level of granularity.” CEEEP has investigated EIA Forms 923 and other public databases which provide historic operation information of large CHP plants. Analysis based on such investigation is included in this presentation. Pl note that the current version of CHP CBA is developed as a high-level stylized model and therefore does not take into account monthly and seasonal differences in electric & gas consumption. The key idea of this stylized model is to calculate costs & benefits at a conceptual level though it compromises on granularity.

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Rasika Athawale and Frank A. Felder CHP Cost-Benefit Analysis Response to stakeholder comments received 27 DRAFT S.No.Comment ReceivedCEEEP Response 4. RC: Key Assumptions - Capital Cost of Black Start Equipment “The U.S. EPA has compiled data on capital costs of equipment for black start capability. A summary of equipment cost from this database is provided below…..“ Since no particular back-up control level type has been identified while in calculations for the stylized model; therefore an assumption has been used which falls between the range of capital costs as confirmed from various sources. Users can change this assumption based on the type of B/S capability they propose to use. 5. RC: Key Assumptions – Value of Loss Load “Loss of load value varies widely by type of customer. …. Accordingly, Rate Counsel does not recommend that CEEEP use a single value for the value of loss of load in its analysis. An analysis similar to PG&E’s should be performed based on New Jersey data. CEEEP should recognize the variation in this value based on type of business or sector within its CBA, which could then be extrapolated to a state-wide basis based on CHP market potential by SIC code.” As Rate Counsel has rightly suggested that the VOLL is extremely customer-specific. Further the current study does not involve calculating VOLL for different types of customers in NJ. Therefore a hypothetical VOLL assumption has been used, which the user can change according to his/her business/ usage. 6.RC: Comments on additional issues – CBA Perspective “The current proposal misses the utility/ratepayer perspective, which means that the model cannot calculate the economics of CHP as a utility investment of ratepayer funds. …. To assess what level of incentives provides the best return on utility/ratepayer investments, the utility perspective is necessary in the CBA model.” Model is being modified from rate payers perspective.

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Rasika Athawale and Frank A. Felder CHP Cost-Benefit Analysis Response to stakeholder comments received 28 DRAFT S.No.Comment ReceivedCEEEP Response 7. RC: Comments on additional issues – Standby Charge “However, to the extent that standby charges represent true costs to the utility, they should be counted as costs from the societal perspective, which will essentially reduce the amount of avoided transmission and distribution costs. This is a complex issue. Thus, we encourage CEEEP and CEP staff to have discussions with utility staff and consult with Rate Counsel on this subject.” Standby charges have been considered as a cost to the CHP project developer who is part of the society. 8. RC: Comments on additional issues – Avoided Emissions “ … Rate Counsel is concerned with this method as it may not accurately estimate avoided emissions, and potentially over-estimates avoided emissions, because it assumes that CHP can displace all of marginal coal generation. … Emission rates within the PJM territory should be readily available. In general, CEEEP should use or develop temporally and geographically differentiated avoided emission data. “ The stylized model takes into account PJM actual marginal run power plant data for 2012. Depending upon the number of hours of operation of a CHP plant, the model calculates which type of marginal plant (coal, gas or oil) would be displaced by the CHP. 9.RC: Additional resources – KEMA 2008 Market potential of Combined Heat and Power in Massachusetts and EPRI 2008, Creating Incentives for Electricity Providers to Integrate Distributed Energy Resources CEEEP is reviewing these studies.

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Rasika Athawale and Frank A. Felder CHP Cost-Benefit Analysis Response to stakeholder comments received 29 DRAFT S.No.Comment ReceivedCEEEP Response 10. NJ Clean Energy Ventures : Provided their project cost ($/KW and $/kWh) as a reference point The stylized model is built as such that the user can change/ modify the input assumption for CHP Capital Cost and Operating Cost as per his/ her understanding. 11. Capstone Turbine: “On slide 5, one of the social benefits missing for CHP is increased efficient use of fuel, which allows more value to be derived from this natural resource.” We recognize ‘increased efficient use of fuel’ as a benefit offered by CHP and it gets captured in the stylized model. 12. Capstone Turbine: “In the technology emissions tables, it would provide broader representation of CHP technologies if a 1 MW microturbine system was used instead of a 1 MW recip. Capstone publishes tech specifications for microturbines at ww.capstoneturbine.com in the Document Library.” Table is for illustration purpose only. 13. Capstone Turbine: “On slide 7, for a 1 MW CHP microturbine system operating at 70% efficiency, the emissions rate for CO2 is 625 lbs/MWh. It is not clear at what level of efficiency the other systems are operating.” Slide 7 does not depict any data for a microturbine system. 14.Capstone Turbine: “On slide 8, a 1 MW CHP microturbine system has a NOx emissions rate of 0.19 lbs/MWh.” Slide 8 does not depict any data for a microturbine system.

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Rasika Athawale and Frank A. Felder CHP Cost-Benefit Analysis Response to stakeholder comments received 30 DRAFT S.No.Comment ReceivedCEEEP Response 15. Capstone Turbine: “On slide 9, a reference is made to the need to include particulate emissions. For a 1 MW CHP microturbine system, the emissions rate for VOC expressed as methane (THC) is 0.047 lbs/MWh or for a low emissions system, 0.018 lbs/MWh.” Noted. 16. Capstone Turbine: On CHP Database – “1. ICF is currently updating its CHP technology comparisons for DOE. 2. LHV is a more typical efficiency reference (vs HHV) for the CHP industry unless fuel input is being considered.” Noted. Fuel input is being considered as part of the stylized model. 17.Veolia Energy North America : “Our principal comment is that we believe your assumed capital costs and O&M costs for Combined Heat and Power are significantly below what we have been facing in the real world markets of the Northeast and particularly in the urban environment that characterizes much of New Jersey. Our operating assumptions for CHP Projects of the size that we typically seek out, approximately 5-15 MW, are typically in the range of from $2,000/kW for a basic greenfield project to $4,000/kW or more for a more complicated project (which most projects are). With respect to CHP O&M costs, these broadly speaking can range anywhere from around 2 to 4 cents per kWh – depending on the type of prime mover, prime mover size, level of warranty, staffing requirements vs. remote monitored, etc.” The stylized model is built as such that the user can change/ modify the input assumption for CHP Capital Cost and Operating Cost as per his/ her understanding.

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Rasika Athawale and Frank A. Felder CHP Cost-Benefit Analysis Response to stakeholder comments received 31 DRAFT S.No.Comment ReceivedCEEEP Response 18. Veolia Energy North America : “Our second comment concerns the CEEEP’s draft Avoided Cost Assumptions, July 2013. We particularly question the assumed $30/kW-year for Avoided Electric Transmission and Distribution (T&D). The New York State Energy Research and Development Authority (NYSERDA) published a study in 2011, “Deployment of Distributed Generation for Grid Support and Distribution System Infrastructure: A Summary Analysis of DG Benefits and Case Studies”, which found that avoided Distribution Capacity costs could range as high as $110/kW-yr. Pace University’s Energy Project reportedly believes that a better estimate would be almost double, i.e., NYC avoided distribution costs on average are now believed to be $200/kW-year. One of the major benefits of CHP, as you know, is the avoidance of T&D costs that CHP enables by siting CHP generation close to load. Getting this component of your study correct is an important element of the CBA.” Determining avoided T&D costs is important; CEEEP has not been asked to conduct an avoided T&D cost study. 19.Veolia Energy North America : “Finally, Veolia has a major concern that your study may not be giving enough weight to the societal benefits of CHP. You are well aware of the significant job creation, economic growth, greenhouse gas emission reductions, national security and enhanced grid reliability and storm proofing that CHP delivers. Please ensure that these societal benefits are fully accounted for in your CBA. While quantifying these positive externalities may not be easy, they are nevertheless critically important to a full and fair analysis. “ The stylized model takes into account society costs and benefits.